This research began as an investiga

This research began as an investigation into how a change in one market can have ramifications in a second market, even if the demands in the two markets are unrelated. We found that a critical issue in determining the nature of the interaction was whether competitors regarded products as strategic substitutes or strategic complements. In other words, would a more aggressive strategy by one firm in a market elicit an aggressive response from its competitors, or would an aggressive move be met with accommodation (competitors playing less aggressively than previously)? This same distinction turns out to be critical in many other oligopoly models. Whether firms overinvest or underinvest in capital relative to the efficient level for production, whether innovations are most profitably sold for fixed fees or licensed for royalties, whether governments maximize national income by taxing or by subsidizing exports, whether firms have incentive to diversify into apparently unprofitable markets or to shun apparently profitable opportunities, and whether firms produce more or less when markets operate simultaneously than when they operate sequentially, all depend on whether